- Limited news and weak technical charts kept Chicago soybean futures lower at midweek, with March sliding to the lowest level in six weeks. Future Chinese demand is unknown, but the trade is concerned that exports in the first half of the year could be primarily sourced from Brazil. Early harvest is underway and initial yields are being reported 10-15% better across Mato Grosso. Brazil looks to be on track for a record harvest. While soybeans and meal have been lower this week, the soyoil market has found support as palm oil prices continue to rise. Nearby soyoil futures this week are trading at a discount to palm oil for the first time since 2011 and only the third time in the last two decades. Rising world vegoil markets looks to underpin Chicago soyoil on breaks. Support in March soybeans is expected at $9 amid China uncertainty. November soybeans could hold $1-1.50 of downside risk as US acreage comes back into production.
- Chicago corn futures ended near unchanged as operational models fail to include any meaningful shift to wetter weather in Argentina into first week of Feb. Wheat-corn spread unwinding is also noted. We doubt the market will find lasting direction until N Hemisphere planting begins. Funds’ sizeable short (estimated at 96k contracts) remains at risk of being covered if large Chinese demand is announced. However, non-China fundamentals remain bearish on rallies. Spot futures-based ethanol production margin has turned negative amid weakness in ethanol prices. Cash ethanol margins across the W Midwest have also turned negative. Analysis of the pace of US export sales increasingly suggests Chinese demand is required to maintain 2019/20 export disappearance at 1,700 million, still down 75 million from USDA’s forecast. Short covering rallies will occur if Argentina stays dry into mid-Feb and Chinese buying is confirmed. Recall also that Argentine beginning stocks are up 1.2 million mt from the prior year.
- Chicago wheat futures ended 4-5 cents lower. March again touched an RSI of 70, while key in the near term is whether the multi-week rally is encouraging Black Sea farm sales. There is also talk that French national labour strikes are losing steam with national rail service resuming later this week. Tightness in the major exporter balance sheet will persist without favourable spring weather across the Northern Hemisphere. However, there is no dire shortage of world wheat stocks. We estimates that upwards of 80% of world wheat trade has been executed with major exporters having secured coverage through March. Research finds near-record high interior prices in Russia producing better farmer selling moving forward. Seasonal price trends in Russia turn down in early March and decline into May/June. $5.90 plus March Chicago futures have digested a large amount of bullish news including the French labour strikes and tight-fisted Russian farm holding. A seasonal top appears to be forming.